Refinancing Decoded: What to know before you Refinance your Mortgage

After paying off their mortgage for a certain period, many homeowners reach a point where they yearn to fast-track their journey to debt-free homeownership. In their quest for a quicker path, one strategy that captivates their attention is 'home refinancing,' a well-known method among individuals. However, the realm of refinancing often leaves homeowners with lingering questions and uncertainties. Fear not, for in this enlightening blog post, PropertyScout is here to demystify the process by addressing the most frequently asked questions and providing comprehensive answers. Get ready to unlock the true potential of home refinancing and pave your way to financial liberation!

Refinancing FAQs

When is the best time to refinance a home?

After approximately 3 years of mortgage payments.

Why 3 years?

After approximately three years of diligently making mortgage payments, homeowners often find themselves at a favorable juncture to consider refinancing. During the initial three-year period, banks commonly entice borrowers with attractive promotional interest rates. However, once the fourth year commences, home interest rates become susceptible to market fluctuations.

Furthermore, many loan agreements outline a specific refinancing option after three years, though the duration may vary. It's crucial to note that refinancing before the designated period may incur a penalty fee of 2-3% of the outstanding debt. Naturally, the terms and conditions outlined in each contract may differ, and certain institutions might impose longer waiting periods.

When should I avoid refinancing my home?

• If you are still within a period with prepayment penalties from your current bank.
• If you have a very small remaining balance or will be debt-free within the next 1-2 years.

What should I consider before refinancing my home?

• Is the interest rate lower than before?
• How much are the fees that need to be paid?
• Compare the interest rate and fees with the original contract, how much can you save? Is it worth it?

What are the fees and expenses in refinancing my home?

• Appraisal fee: Free - 3,000 THB
• Mortgage registration fee: 1% of the loan amount
• Stamp duty fee: 0.05% of the loan amount
• Fire insurance fee
• Other fees as per the bank's terms and conditions

How can you increase the loan amount when refinancing a home?

When refinancing, subtracting the appraised value of the home from the remaining debt owed to the original bank can provide a surplus amount that can be requested as an additional loan. Apart from the refinancing loan amount, there are possibilities to apply for an additional loan for specific purposes.

Example:

Mr. PropertyScout borrowed 3 million baht from their original bank to purchase a house. After 3 years of making payments, the remaining debt is 2 million baht. They decided to refinance with a new bank that offers a loan amount of 90% of the appraised value.

Currently, the appraised value is 4 million baht. (4,000,000 x 90%) = the maximum loan amount is 3.6 million baht. Therefore, Mr. A can use this loan amount to pay off the 2 million baht debt to the original bank, leaving a surplus of 1.6 million baht as an increased loan amount.

Can I refinance my home with the same bank?

You can request a reduction in interest rates from the original bank after completing 3 years of mortgage payments at a fixed interest rate.

Closing Comments

Once homeowners have fulfilled the minimum mortgage payment period specified in their loan agreement, they have the opportunity and freedom to consider refinancing. However, it's crucial to conduct a thorough comparison of various conditions, as securing a lower interest rate is not the sole factor to consider. Additional fees must be taken into account, and a careful cost-effectiveness analysis is necessary before making a decision. If the potential savings from a lower interest rate do not outweigh the associated expenses and time invested, it may be more beneficial to continue repaying the loan with the original bank until the agreement's end.

Furthermore, it's essential to review the original bank's terms for loan redemption to determine the eligible refinancing period. Failure to do so could result in penalties or conditions imposed by the original bank for early loan repayment.

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